Coworking Spaces Are Hot Retail Anchor Tenants

Increasingly, where you work will also be where you shop. (Photographer: Michael Nagle/Bloomberg)

The drumbeat of retail store closings and struggles has dominated news headlines, led by Toys “R” Us’ recent closing of its entire U.S. store fleet. While the closings of underperforming retailers are far from over, the brick-and-mortar retail sector can take some comfort in the fact that it still holds plenty of appeal: Just look at the crop of coworking spaces, housing retailers’ coveted millennial customers, that are eager to move in.

Coworking space in malls, street fronts and other retail properties will grow at an annual rate of 25% through 2023 to reach about 3.4 million square feet, commercial real estate research and services firmJLL wrote in a study published Thursday. How significant is that? The average annual growth rate in occupied retail square footage between 2010 and 2017 was just 0.9%, JLL said.

“Coworking presents a viable solution for vacant retail space by decreasing vacancy and driving additional foot traffic with a guaranteed daytime population,” the research firm said in its first-ever study looking at 75 U.S. coworking retail spaces, totaling one million square feet. “Added foot traffic may also help revitalize the center and attract new retail tenants.”

Why? The millennial-driven sharing economy — think of Uber and Airbnb — makes a positive case for the continued growth of coworking space. JLL forecast “flexible space” will grow to 30% of all office stock by 2030 as some 43% of the employed U.S. workforce work remotely at least some of the time.

Since 2010, flexible working space has risen an average of 23% each year, outpacing the 1% annual average occupancy rate of the overall U.S. office-property market.

What’s more, the study found coworking retail spaces tend to be in areas with above-average consumption power: The average household income within a three-mile radius of coworking retail spaces is about $100,000. Playing well to the needs of millennials with declining car ownership, nearly 80% of the retail coworking spaces are either very or somewhat walkable, according to the study.

As millennials start their own families and buy homes outside cities, more retail coworking spaces will open in the suburbs, which already house 55% of coworking spaces, JLL said.

Malls currently house about one-fifth of retail coworking spaces.JLL

The study found that the retail and coworking relationship is mutually beneficial. Coworking space hosts are increasingly including retail space as a perk for members. There’s also a growing trend for these spaces to play the role of “retail incubators” to give retail startup and online brands easy access to consumers to test demand without being saddled with traditional longer-term retail leases.

“Retail-based coworking spaces are successfully integrating work and play; bringing makers, workers and consumers together; and bringing new life and experience to retail locations,” the study said. “We expect further growth in these hybrid spaces.”

There are plenty of examples to back up the study’s findings. Chicago’s Water Tower Place, for instance, is working with startup Cowork at the Mall to open a 15,000-square-foot coworking space that reportedly housed the now-defunct Sports Authority.

“Our retail space offers pop-up shops and displays, where early-stage companies can sell their wares in a mall” that drives millions of shoppers in traffic annually, Cowork at the Mall said on its LinkedIn page. “Our event space offers anything from meet-the-maker events to runway shows to product activation.”

In another example, mall ownerMacerichsaid Wednesday that it’s partnering with coworking space operator Industrious, which has big-name clients including Hyatt, Pandora and Pinterest, to design coworking space in its properties. The first showcase of that will come in January 2019 when an Industrious space is set to open at Scottsdale Fashion Square mall in Arizona.

Picture the experience for those people opting to work out of that space. They will be able to walk to shop at the mall’s stores, from Sephora to Burberry (and even an Amazon kiosk), or have burgers for lunch at Shake Shack, based on the list of merchants in the mall directory currently online.

As to the poster child of the coworking trend, WeWork in June opened its first WeMRKT retail concept in a downtown New York location to sell snacks, yogurt, apparel and other products, made by its members. WeWork said it will open more WeMRKTs around the country.

WeWork also has partnerships with J. Crew and LinkedIn to host events where its members can get discounts to shop at pop-up J. Crew locations. It’s also planning to move in to Lord & Taylor’s New York flagship when the department store shuts that location, expected to be early next year.

Elsewhere, at Minnesota’s Southdale Center, controlled by No. 1 U.S. mall ownerSimon Property Group, fitness chain Life Time will open Life Time Work, which includes coworking space so people can exercise, work and shop all at the same time, reflecting the ever-bigger retail mixed-use trend.

The traditional big-box retailer Staples, feeling the pain of the “digitization of workplace,” which has slowed traffic and consumer demand for its ink cartridges and printers, has housed Workbar coworking spaces at stores in its home state of Massachusetts.

Brick-and-mortar retail isn’t dead. It’s just becoming a place where you can not only shop but also work and do a lot of other things, all at the same time.

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